Energy Risk Management Dissertation Example | Topics and Well Written Essays - 1500 words

Energy Risk Management - Dissertation Example Regulatory agencies of governments sell smaller units of this limit to individual organisations in the form of emission permit or carbon credit (Bayon, 2007). The emission permit gives an organisation the right to emit a specified volume of green house gas. The carbon credits can be traded in the market and on specified stock exchanges. Organisations must buy the required number of permits equivalent to the amount of emissions. There is a limit on the total number of permits that are offered by the government. If an organisation needs more permits, it can buy these from the market and thus offset their emissions. The whole system of carbon credit trading is rigidly controlled by the stock exchanges. While erring firms now have the option of getting away with pollution and excess emissions, the government is at least making these firms to pay for the emissions. Since the number of carbon credits available is limited, the price of the credits can fluctuate. Eventually, erring firms wou ld be expected to improve their process so that fewer emissions take place. The carbon credit trading market is worth more than 64 billion USD in 2007 and the market is expected to grow rapidly as accountability increases (Tietenberg, 2009). This dissertation will research the structure of carbon credit market and emissions trading. The dissertation will also examine price fluctuations, drivers for price variations and make recommendations to improve the market structure. 1.1. Rationale for the paper The term carbon credit is used to identify a permit or tradable certificate. It gives the owner the permission to emit one tonne of greenhouse gases or carbon dioxide or any other equivalent gas such as sulphur or carbon monoxide. One carbon credit represents one metric tonne of green house gases and is designated by the term tCO2e. The Kyoto Protocol brought in some accountability for nations and signatories to this protocol agreed for some legal targets that limited the amount of emis sions by each nation (Stone, 20110. The European Union Emissions Trading Scheme - EUETS and other bodies have agreed to reduce the CO2 emission by 8% in 2012 as compared to the 1990 levels. As per the protocol and agreements, emission quotas were assigned to each nation and these are called as assigned amount units AAAs. Each nation was allowed to sell these units to industries and even individuals. Based on the nature of industry and processes, each industry was expected to buy a certain amount of units. Failure to comply would result in social stigma besides having to pay extra taxes. In some nations, these units were in shortage and in France, Germany and UK; the price for a unit quickly rose from 50 Euros to 90 Euros per unit. Croci (2011) says that nations such as Russia, Ukraine and many other former USSR satellite nations had huge surpluses and they dumped their AAAs in the market, bringing the market down. It was also seen that during recession, the amount of emissions in ma ny nations reduced and this was mainly due to fewer industries operations. Overall, the market for carbon credit sees a lot of volatility, fluctuations and even price manipulation (Stone, 2010). Existing literature does not examine these aspects or understand the correlation between various drivers. In addition, since the subject of emissions trading is relatively recent, many studies have not been conducted in